How well-behaved are higher-order perturbation solutions?
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| Publication date | 2009 |
| Series | DNB working paper, 240 |
| Number of pages | 57 |
| Publisher | Amsterdam: De Nederlandsche Bank |
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| Abstract |
They are not well-behaved. The main problem is that one cannot control the radius of convergence when using perturbation techniques. Just outside the radius of convergence, higher-order approximations can easily behave extremely badly, and even within the radius of convergence one can expect higher- but finite-order perturbation solutions to display problematic oscillations. In contrast, with projection methods one can control the radius of convergence. Pruning, the solution proposed to deal with explosive behavior of higher-order perturbation solutions, is shown to be highly distortionary. A simple alternative based on short samples and rejection sampling is proposed and shown to be much less distortive.
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| Document type | Report |
| Language | English |
| Published at | http://www.dnb.nl/publicatie/publicaties-dnb/dnb-working-papers-reeks/dnb-working-papers/dnb228946.jsp |
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